Last updated: November 2025
Quick Answer
Home equity is the portion of your home you truly own, calculated as your home’s market value minus your mortgage balance. It grows over time through loan repayment, rising property values, and smart renovations.
To build equity faster, reduce your mortgage principal, invest in value-boosting upgrades, and monitor market trends.
What is home equity?
Home equity is the difference between your home’s current market value and the remaining balance on your mortgage. It represents the financial stake you hold in your property.
Example: If your home is worth $400,000 and you owe $250,000, your equity is $150,000.
Equity grows when:
- You pay down your mortgage principal
- Your home’s value appreciates
- You improve the property
Learn: What is a HELOC?
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Key factors that affect home equity
Several variables determine how much equity you have in your home. These include:
1. Mortgage payments
Each monthly payment reduces your principal and increases your equity. In the early years, a larger portion goes to interest. Over time, more is applied to the principal.
2. Property value changes
Market appreciation increases your home’s value and your equity. Depreciation has the opposite effect. Equity can grow or shrink based on:
- Local market conditions
- Economic trends
- Interest rates
- Neighborhood development
3. Home improvements
Upgrades like kitchen remodels, new roofs, or energy-efficient windows can raise your home’s appraised value and boost equity.
4. Loan terms
Fixed-rate, interest-only, or adjustable-rate mortgages can affect equity growth. Paying only interest doesn’t increase equity.
How to build home equity faster
Whether you’re a new homeowner or planning to sell, increasing your equity improves financial flexibility. Here are proven methods:
1. Make extra principal payments
Paying more than your minimum mortgage payment—even small amounts—reduces your loan balance and builds equity faster.
2. Refinance to a shorter loan term
A 15-year mortgage builds equity faster than a 30-year loan because of higher principal payments.
3. Avoid interest-only loans
These delays equity growth because you’re not reducing the loan balance during the interest-only period.
4. Invest in high-ROI upgrades
Improvements that increase appraised value can boost equity. Focus on:
- Kitchen and bathroom renovations
- New roofing or siding
- Energy-efficient systems
- Landscaping and curb appeal
Read more: How does a HELOC work?
How market conditions impact equity
Your home’s value is not fixed; it changes with the real estate market. Here’s how broader conditions play a role:
| Factor | Impact on Equity |
| Rising home prices | Increases equity |
| Declining property values | Decreases equity |
| Low interest rates | Encourages buying and value growth |
| High interest rates | May slow appreciation |
Even if you don’t renovate or make extra payments, your equity can grow passively in a strong housing market.
Can you lose home equity?
Yes, equity isn’t guaranteed. It can decrease due to:
- Falling home values
- Market corrections or downturns
- Taking out a second mortgage or HELOC
- Neglecting property maintenance
- Refinancing into higher loan balances
Protect your equity by staying informed about market trends and avoiding excessive borrowing.
Learn: Use our HELOC calculator.
Equity and borrowing power
Your equity plays a key role in loan eligibility. The more equity you have, the stronger your financial position when applying for:
- A home equity line of credit (HELOC)
- A home equity loan
- A cash-out refinance
Lenders often require you to retain 15–20% equity after borrowing. That means your loan-to-value (LTV) or combined loan-to-value (CLTV) must stay within approved limits.
Learn: How to apply for a HELOC.
How home equity strengthens your financial future
Building equity goes beyond just owning more of your home. It opens doors to broader financial opportunities:
- Tappable equity: Use it for education, home repairs, or debt consolidation
- Creditworthiness: High equity improves your borrowing profile
- Retirement planning: Downsizing or using equity for income later in life
- Emergency funding: Access equity via a HELOC if needed
Home equity is a long-term asset
The equity in your home is one of your most powerful financial tools. By strategically managing your mortgage and staying informed about market conditions, you can steadily build equity over time.
Whether your goal is to renovate, invest, or borrow, equity gives you leverage.
Ready to Put Your Equity to Work?
Knowing how much equity you have is the first step. Using it wisely is the next step.
Check your HELOC eligibility in minutes—with no impact on your credit. See how much you could borrow based on your current equity and get personalized options built for your goals.
FAQs: What affects your home equity, and how to build more of it
Q: What is the best way to build home equity?
A: The most effective methods include making extra principal payments, refinancing to a shorter term, and investing in value-boosting home upgrades.
Q: Does my home’s value change my equity?
A: Yes. If your home appreciates, your equity increases even if your loan balance stays the same. If the market declines, your equity may drop.
Q: Can home improvements increase my equity?
A: Absolutely. Renovations that raise your home’s appraised value directly improve your equity position, especially when paired with smart loan management.
Q: How often should I check my home equity?
A: Annually is a good benchmark. Track your mortgage balance and estimate your property’s market value to stay up to date on your equity.
Q: Is equity accessible without selling my home?
A: Yes. A HELOC or home equity loan lets you borrow against your equity while continuing to live in your home.
